Consolidating Student Loans Nelnet

The recent news that the company Nelnet was merging with OneWest Bank caught us by surprise. We knew that mergers were sometimes necessary to save money, especially in the banking sector. But if we’re paying off student loans, shouldn’t we look at consolidating our debt? That might seem counterintuitive, but consolidation involves taking out a single loan instead of many different ones, and using the consolidated loan to pay down the total amount of debt faster. Here’s how Nelnet may benefit from a merger with OneWest.

Nelnet offers loan programs for both federal and private student loans. If you have federal loans, Nelnet offers a special program called “Pay As You Earn,” where payments are based on what you earn each month. Under PAYE, you make monthly payments based on 10% of your gross income (before taxes), and any remaining balance after 25 years of payment is forgiven. Private lenders offer similar programs, but don’t forgive the entire balance until 20 or 25 years later.

OneWest Bank doesn’t offer a specific student loan program, but they do offer a variety of credit cards and home mortgage products. There are certainly advantages to having access to these additional financial services. Besides offering competitive rates, OneWest Bank also provides customer service 24 hours a day, 365 days a year. And with its headquarters just across the street from Nelnet’s in downtown Los Angeles, it seems like a natural fit.

A merger would also help Nelnet expand its business. Nelnet specializes in lending, while OneWest Bank focuses primarily on consumer finance. Still, Nelnet could use some added competition in the student loan market. A merger would likely give them the opportunity to provide more affordable financing options to students who need them. In addition, Nelnet’s name is well known throughout California and beyond, so a merger could help them attract clients in other states.

Consolidating Student Loans Nelnet

Consolidation

Many borrowers who have student loans have various different loan programs they could consolidate; however, many people fail to do so due to the misconception that consolidation only involves private lenders. Although this may be true, there are a number of reasons why borrowers should consider consolidating their federal student loans.

Interest Rate Reduction

One of the great things about consolidating your student loans is that you can lower your interest rate, saving yourself money over time. Borrowers often think that they will not qualify for any type of loan program if they consolidate; however, when borrowers review their options, they find that they actually qualify for some of these programs.

Loan Payment Increase

Another benefit to consolidating your student loans, especially if you have low monthly payments, is the possibility of increasing them. By consolidating your federal loans, you can receive a payment increase each month, meaning you won’t pay off your loans as fast.

Debt Management Plan (DMP)

A debt management plan is a way for you to repay your loans in a manner that best suits your lifestyle. Many people assume that the only option is to use a credit card to manage your debt; however, you can use a DMP to help you pay down your debts quicker than using a credit card would allow.

Income Based Repayment (IBR)

Interest rates for income based repayment plans depend on your family size and income. If you are in a higher tax bracket, you may want to talk to a financial advisor before signing up for IBR. You may be able to get a better deal on a traditional repayment plan.

Lower Payments

The last thing you want to do while trying to pay back your student loans is make small payments. By consolidating your loans, you can save a lot of money on your payments and potentially even pay them off sooner.

Consolidating Student Loans Nelnet

Nelnet Inc., a provider of consumer financing services, said Tuesday that student loan borrowers consolidated their loans at higher rates than expected.

The company’s net income rose to $38 million, or 33 cents per share, in the first quarter ended March 31, compared with $31.8 million, or 27 cents per share, a year earlier. Excluding certain items, the company earned 38 cents per share, topping analysts expectations of 28 cents, according to Thomson Reuters I/B/E/S. Revenue increased 21% to $912 million.

(Reporting by Kunal Pandya; Editing by Anil D’Silva)

Consolidating Student Loans Nelnet

Nelnet Inc., the nation’s largest student loan servicer, announced today it has entered into a definitive agreement under which it will buy Consolidated Credit Corp.’s (CCC) consumer education business for $250 million. Under the terms of the transaction, Nelnet will pay $130 per share in cash to purchase the approximately 1.5 million outstanding shares of CCC common stock. Upon closing of the deal, Nelnet expects to net about $85 million after certain costs associated with the acquisition have been deducted.

The deal combines two highly-respected companies and should provide tremendous value to both sides’ shareholders. As a result of the merger, Nelnet will become the third largest servicer of loans in North America, servicing nearly 2 million active borrowers across all 50 states. At the same time, CCC will become the leading provider of debt management products aimed at consumers who want to consolidate their current debt. Nelnet plans to continue providing its existing services to these customers while transitioning them to CCC’s new platform over the course of the first year following completion of the transaction.

In addition to the financial benefits of combining forces, Nelnet and CCC are expected to create significant synergies. Nelnet’s strong network of agents and lenders provides CCC with access to markets where they currently lack the scale necessary to reach many students. In turn, CCC’s established brand in consumer debt consolidation could help Nelnet gain ground among those already familiar with CCC’s offerings. Additionally, the transaction should improve operational efficiencies and reduce redundancies. Both companies believe the combination will deliver greater value to their respective clients and shareholders.

“This transaction represents an exciting opportunity for our customers,” said Richard D. Smith, president and chief executive officer of Nelnet. “We’re committed to serving all our customers well, regardless of whether they are enrolled in school, self-employed, retired or unemployed. Our combined company will be able to do just that.”

“The combination of Nelnet and CCR will allow us to serve more than 2 million consumers and more than 25 million loans nationwide,” said John S. Whitehead, chairman and CEO of CCC. “Nelnet’s industry experience, customer service reputation and deep relationships with the marketplace make them an ideal partner for CCC.”

Both companies expect the transaction to close in the second half of 2011, subject to regulatory approvals and customary conditions including clearance of CCC’s shareholders. The transaction remains subject to approval by the boards of directors of each company, and is contingent upon various conditions, including receipt of approval of the U.S. Department of Education and the Federal Reserve Bank of New York. If the transaction closes, Nelnet expects the combined company to  annual revenue of approximately $6 billion.

As part of the consideration for the acquisition, Nelnet has agreed to issue a performance-based note payable of U.S.$200 million and a warrant exercisable for the issuance of an additional U.S.$400 million if CCC meets certain financial and operating targets over a three-year period from the date of closing. Nelnet also has agreed to maintain CCC’s base salaries for its employees at current levels through January 2013. These amounts are non-refundable and may increase based on future earnings.

Consolidating Student Loans Nelnet

Consolidation

There are many reasons why student loan consolidation may be advantageous to you and your financial future. First of all, it’s a great way to get out of debt faster. But it’s not just about getting rid of your loans; it’s about getting a lower interest rate while you do it. And if you’re able to pay off your loans early, you’ll save money on interest payments.

Loan forgiveness

If you go back to school, consider taking advantage of any loan-forgiveness options before doing so. You should check with your lender(s) to find out if they offer loan cancellation or deferment during these times. If they don’t (and some don’t), you could be eligible for federal loan forgiveness.

No income verification

Student loan repayment doesn’t necessarily have to mean working at a job. Many private lenders are willing to work with students who have no income — even if their parents aren’t helping them financially. So if you know you won’t be making much money during your studies, then your credit score won’t suffer. This is called income-based repayment and it generally means paying less over time than you would under standard income-driven repayment.

No minimum payment

Many people struggle to make small, monthly payments without falling behind on their bills. In fact, according to the Consumer Financial Protection Bureau, 34% of borrowers with federal education loans didn’t make a payment last year. While your lender(s) may require minimum payments, you may still qualify for smaller payments based on your unique situation.

Fixed rates vs. variable rates

Most student loans carry fixed interest rates. That’s good news because it means you’re locked into a low rate for a set period of time. However, if you opt for variable-rate loans, you could end up paying more in the long run. A variable rate fluctuates throughout the day, week, month, or year. While it might seem tempting to lock yourself in now, it’s best to think twice before signing on the dotted line.

Flexible payment plans

You may already be familiar with flexible payment plans for your other loans, but many schools provide similar programs specifically tailored toward student loan repayment. These plans allow you to spread out your payments over time, which can help reduce the total amount owed and/or eliminate penalties for being a few days late.

Income-based repayment

If you choose to take out a federal student loan, you may be able to use income-based repayment instead of standard repayment. Under IBR, you’ll repay a portion of your loan over a period of 10 years, and the remaining balance over 20 years. Your monthly payment will depend on how much you owe and your income level.

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